Plan now to ease into the second half of your financial life

Jane Bryant Quinn is the author of "Making the Most of Your Money NOW."

Jane Bryant Quinn is the author of "Making the Most of Your Money NOW."

Whether you've hopped on a hot trend  embracing an encore career  or are simply getting ready to retire, a change at this stage of life can mean living on less, or making adjustments. While the reward of moving toward a career you find more fulfilling, or having leisure time to do whatever you wish, is a positive, there are some things to know that can help put you on the road to happily ever after.

Prepare emotionally

When it comes to living on less, no matter what the reason, Dr. Timothy Cullinane, chairman of the Department of Psychiatry at Elmhurst Memorial Hospital, says an emotional attitude adjustment is necessary.

"Most people will be living on less money than when they were working," he says.

"They can't expect to do the same things, like going out to dinner as much. One thing to prepare is a budget so you know what to expect about what you can or can't do.

You may have less money around, but you'll have more time or more satisfaction if you are doing something you really want to do. Thinking in terms of a tradeoff is helpful."

Jane Bryant Quinn, Personal Finance Contributor, AARP Bulletin, and author of the best-selling "Making the Most of Your Money NOW," says there's no reason to turn having less income into heartbreak.

"Lots of people find themselves with less income and not just at retirement," she says. "They lose their jobs, they get sick, they have to take care of a family member and cut back job hours, a couple decides to have a baby and one of them quits work.

The best way to prepare is to think about it for a while in advance (including thinking about the possibility of losing your job and what you would do). Mental planning, as well as financial planning, helps you adapt. The sooner you adapt, the better your emotional and financial future."

John Davis, president of Mentor Capital Management in Elmhurst, says it's important to recognize that finances have life cycles as well.

"In meeting with your financial advisor, he should be teaching you about your financial life cycle," he says. "When we are under our parents' wing, we are consumers, and when we are in retirement, we again primarily are consumers. In between  during our 30s, 40s and 50s  we should be accumulators. Build wealth by setting aside an amount each month. Use tax-advantaged vehicles like IRAs and 401Ks. Invest some for growth and some for income. The power of compounding over long periods of time is awesome."

Keys to knowledge

The key to making this emotional and financial transition is knowing you are not alone, says Bryant Quinn. "Almost everyone does it, after retirement," she says.

"Very few people can  or do  save enough in advance to preserve the same lifestyle post-paycheck that they had when paychecks arrived regularly at your bank. Dialing back is normal. There are no more Joneses to keep up with any more, no more professional colleagues to impress. This is a more leisurely phase of life, connected with family and with old friends, not with friends with whom the main ties were work. Everyone post-retirement has a different mode of life. When you dial back, you look at your priorities and arrange your life and spending to fit."

John Davis says for some living on less may not be the only option.

"Retirement is a matter of what you want to do, and that may be living on more," he points out. "The reality is that some expenses will be higher and some will be lower.

In retirement, you will have an empty nest (you hope); you won't be spending on work lunches or your commute to work.

"Unless you continue to work in retirement, payments to Social Security, Medicare and retirement accounts will vanish. Your net expenses in that first year of retirement will form a baseline for your need for income going forward. How will those expenses change? How will inflation impact your life style? Working with a financial advisor, you can flesh out these issues and put a plan into place to live the lifestyle you want, not one you're forced to settle for."

Best practices

To prepare for retirement or an encore career, good old-fashioned list making may be the way to go, says Bryant Quinn.

"Once you know how much income you're going to have, draw up a list of your priorities," she says. "What matters most? What's nice to have but not essential?

What can you have less of than you had before or cut out of your life entirely?

Married couples may find they have different priorities, which calls for negotiation.

The amount of income you're going to have is a single hard fact  the result of the savings you have and choices you made before. Now, the job is to fit the best life you can think of within that amount of income. The only question is whether you've arranged your life to get the most personal satisfaction out of the money you have."

Davis says it's important to strike a balance between consuming today and saving for tomorrow. "Retirement isn't the end-all," he adds. "In fact, many love their work so much that working well into their 70s is a real possibility."

At this stage in life, Cullinane says, thinking differently about money and being clear about values is important.

"If you are doing something that you always wanted to do even though that means less money, it can be very rewarding," he says. "Just be clear about your values  why you are doing what you're doing. At the end of work time, as you retire, expect that you might be disappointed, but looking forward to having more time for hobbies or changing careers can be rewarding even if this brings in less money or no money. These rewards are more intrinsic than the paycheck."